An influential theoretical literature supports a discriminatory explanation for product bundling: it reduces consumer heterogeneity, extracting surplus in a manner similar to second-degree price discrimination. This paper tests this theory and quantifies its importance in the cable television industry. The results provide qualified support for the theory. While bundling of general-interest cable networks is estimated to have no discriminatory effect, bundling an average top-15 special-interest cable network significantly increases the estimated elasticity of cable demand. Calibrating these results to a simple model of bundle demand with normally distributed tastes suggests that such bundling yields a heterogeneity reduction equal to a 4.7% increase in firm profits (and 4.0% reduction in consumers surplus). The results are robust to alternative explanations for bundling. © Springer Science+Business Media, LLC 2007.
CITATION STYLE
Crawford, G. S. (2008). The discriminatory incentives to bundle in the cable television industry. Quantitative Marketing and Economics, 6(1), 41–78. https://doi.org/10.1007/s11129-007-9031-7
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